UK water bills set to fall over next five years

British households should see their average water and sewerage bills fall by
4pc over the next five years, under new proposals announced by regulator
Ofwat.

The regulator has said that water bills will fall over the next 5 years

8:03AM BST 23 Jul 2009

The average bill will be trimmed by £14 to £330, Oftwat said today in draft proposals that are due to come into effect next year.

Regina Finn, Ofwat's chief executive, said "we understand that times are hard and we have listened to what customers have told us."

Ofwat insisted that the plans, which the regulator has devised after examining the business plans of water companies including United Utilities, Severn Trent , Pennon and Northumbrian Water, will not affect the planned £21bn of investment in the water system over the next five years.

According to Ofwat, the spending plans will also reduce the risk of extreme weather - such as 2007's floods - disrupting supply for around 10 million people.

Water companies had asked for a more generous deal from the regulator to reflect the tougher economic climate and help them pay for the investment in new infrastructure.

However, Ms Finn said: "Our decisions allow efficient, well-run companies to invest in the right place at the right time for the right price."

The return that water companies are allowed to make on their capital - critical for maintaining dividends - is 4.5pc on a post-tax basis, at the low end of analyst expectations of about 4.6pc.

Water companies are seen as reliable dividend stocks, but the ruling could force some to cut payouts in the future if they decide they are getting inadequate returns from spending plans.

Both United Utilities and Severn Trent have been singled out as being two companies particularly at risk because of their level of debt and the size of their dividends. There shares both fell between 5pc-7pc.